‘HOT MONEY’ DOMINATES NIGERIA’S $17 BILLION INFLOW
The record of foreign inflow into the country in 2018 at $16.81 billion, has shown that investors targeted portfolio investments, also known as “hot money”, rather than establishment of institutions and taking equity stake in already existing ones.
Hot money, as it is called, is frequently transferred among financial institutions in an attempt to maximise interest or capital gain and can be pulled out by the investor easily, depending on the investor’s perception of the business environment.
Specifically, hot money investments are targeted at bonds, stock market and money market instruments and are major part of foreign investments inflow, which also exert pressure on the Naira and national reserves each time the investors’ perception of the economy is negative, leading to capital flight.
The National Bureau of Statistics (NBS), said the total value of capital importation into Nigeria rose to $16.81 billion in 2018, compared to $12.23 billion recorded in 2017, representing 37.49 per cent growth year-on-year.
According to NBS, in “the fourth quarter (Q4) of 2018, total value of capital importation into Nigeria stood at $2.14 billion, representing a decrease of 25.05 per cent, compared to Q3 of 2018 and 60.24 per cent decrease compared to Q4 of 2017.
“The largest amount of capital importation by type (2018), was received through Portfolio investment, which accounted for 70.20 per cent ($11.8 billion) of total capital importation, at $11.8 billion.”
This was followed by Other Investment, made up of trade credits, loans, currency deposits and other claims, accounting for 22.69 per cent ($3.82 billion), while Foreign Direct Investment (FDI), being the most desirable, accounted for a paltry 7.11 per cent at $1.19 billion of total capital imported in 2018.
Foreign investors, as well as their local counterpart, took advantage of the high yielding government securities and the expanding commercial paper issuing by companies to stake more under the portfolio investment. The investor perception of the country’s business environment ended in steep descent on quarterly trend analysis, as Q1 recorded $6.3 billion capital importation, followed by the year’s first decline to $5.51 billion in Q2 and a plunge to $2.85 billion in Q3, while Q4 had $2.14 billion.
Top five sectors to attract inflow were shares, with $10.43 billion; banking, $2.02 billion; financing, $1.48 billion; services, $1.29 billion; and production, $671 million.
The United Kingdom emerged as the top source of capital investment in Nigeria in 2018 with $6.01 billion, representing 35.74 per cent of the total capital inflow in 2018, followed by the United States, with $3.58 billion. Others were South Africa, at $1.15 billion; United Arab Emirates, $937.2 million; Belgium, $886.1 million; Singapore, $780.87 million; and Ghana, $626.44 million.